GOVT DETERMINED TO MAINTAIN ITS RICE SELF-SUFFICIENCY

By Andi Abdussalam

       Jakarta, Aug 23 (ANTARA) - Indonesia, which boasted about its rice self-efficiency at a FAO conference in Rome in 1985, is determined to maintain the self-efficiency in rice it has regained after years of importing the commodity.

        "We estimate that the country's rice production this year will exceed national consumption. We have to maintain the rice self-sufficiency by maintaining increased national rice production," President Susilo Bambang Yudohono told a plenary meeting of the Regional Representatives Council (DPD) here on Friday.

        The Central Bureau of Statistics (BPS) reported production in 2008 is estimated at 59.88 million tons of dry unhusked rice or equivalent to about 34 million tons of rice.

        With a population of 227.78 million, the national rice production level would surpass national need estimated at 31.68 million tons a year.

        Last year, Indonesia's dry unhusked rice output rose by 4.98 percent or 2.70 million tons from 2006, enabling the country to enjoy a surplus of 1.5 million tons,

        President Yudhoyono said that in order to maintain rice self-sufficiency, each region in the country must significantly raise its production level. To this end, the government would provide the needed facilities such as seeds, fertilizer and improve agricultural infrastructure facilities in the regions.

        In the meantime, DPD chairman Ginandjar Kartasasmita said the DPD was delighted to hear that Indonesia had regained self-sufficiency in food, in rice in particular. He said it was a great achievement by the government.

        Food security is as crucial to Indonesia as energy security. In addition to energy security, food security is an important problem in Indonesia with its big population, Kartasasmita said.

        Yet, to maintain the food self sufficiency, the government should stay alert, he said because there were many factors that could influence agricultural production.

        In addition to climate and weather conditions as well as the threat of plant diseases or pests, the availability of production facilities and a smooth distribution system were also determining factors. For example, he said, the DPD had received reports from several regions such as North Sumatra about shortages of fertilizer.

        "Above all, what poses as a challenge to us is how to guarantee the welfare and the buying power of farmers and fishermen who should now be enjoying the benefits of the high prices of agricultural products in the world," he said.

        For this reason, President Yudhoyono explained that each time he was visiting a region he would always ask a report from the governor, mayor and district head about the progress and problems their regions were facing in food production.

        Yudhyono admitted that enough national food stock was only one of the factors that affected prices of food. "The smoothness of goods distribution is also a factor that could affect price stability," he added.

        Regional governments therefore need to support the central government's efforts to improve the distribution and flow of goods. This is intended to reduce additional burdens in the distribution of goods.

        The president also called on regions to anticipate food price hikes by increasing stocks of the staple. "All regions must discard their egoistic attitudes that hamper the flow and distribution of necessary goods for the people. Barriers hampering the flow of goods must be removed because it will drive up prices and inflation rates," the president said.

        The president's remarks indicated the important role the regions were playing in building the country's self-efficiency in food. Regions have extensive and potential areas for the development of agriculture.

        Therefore, agricultural and plantation development will not be carried out in Java only but also in other island . According to Agriculture Minister Anton Apriantono, if the self-sufficiency is to be maintained, agricultural development must not be done in Java only but also in other islands.

        "Oil palm plantations can be opened in many regions other than where they are now located," the minister said on Friday.

        Development of rice and oil palm plantations would be carried out in regions which are most suitable such as Marauke in Papua, he said.

        "But the central government will only facilitate development of agriculture in the regions. The initiaive must be taken by the regional administrations concerned," Apriiantono added.

        Indonesia has several food crop varieties such as maize and soybean that could be developed to strengthen national food resilience.

        "Our food resilience is high. We have various food varieties which are carbohydrate sources that can replace rice if the country runs low on the staple," Hasanuddin Ibrahim of the Ministry of Agriculture said recently.

        Besides, the government had also stated its determination to taise Indonesia's soybean production to more than 1.3 million tons in 2008 in order to reduce dependence on imports.

        Agriculture Minister Anton Apriantono said the government would have to enhance the country's self-sufficiency in soybean from 2015 to 2011 with a production of one to 1.3 million tons.

        To maintain self-sufficiency in food, he added, the government had allocated Rp1 trillion, which included Rp600 billion for soybean cultivation. (T.A014/A/HAJM/14:25/A/O001) 23-08-2008 14:37:54

GOVT CHALLENGED TO MEET ITS 6.2 PCT ECONOMIC GROWTH TARGET

By Andi Abdussalam

       Jakarta, Aug 20 (ANTARA) - While the government sees better economic conditions next year, businesses say that the government has to work hard to achieve its 6.2 percent economic growth and 6.5 percent inflation rate targets for 2009.

        "The government has to work hard and focus on infrastructure development if it wants to achieve its economic growth and inflation rate targets next year," Chairman of the Indonesian Association of Young Entrepreneurs (Hipmi), Erwin Aksa said on Monday.

        The Hipmi chairman made the statement in response to the government's prediction that Indonesia's economic growth in 2009 would remain at over six percent despite persistent external pressures.

        "We have been able to maintain the economic growth at over 6 percent during eight consecutive quarters," President Susilo Bambang Yudhoyono said in his state of the nation address on the Draft 2009 State Budget and Financial Notes before the House of Representatives (DPR)'s plenary session here last week.

        The president said it was a matter of fact that Indonesia's economy during the first semester of 2008 managed to keep its momentum going with a growth rate of 6.4 percent, which is the highest rate after the economic crisis in 1998.

        "We should be grateful that despite the persistent external pressures, we have been able to maintain the economic growth of over 6 percent during eight consecutive quarters," the president said.

        Yet, Hipmi is of the view that the 6.2 percent economic growth and 6.5 percent inflation rate targets are a challenge to the government owing to the fact that commodity prices are still high and the people's purchasing power still weak.

        "The 2009 state budget should focus on the development of infrastructure in order to improve the investment climate and reduce the poverty rate," Erwin Aksa said.

        According to the the Hipmi chairman, the budget should be spent on effective and efficient infrastructure development programs so that it would have a direct effect on the economic growth, on increasing the people's purchasing power and on improving their living standard.

        In the meantime, inflation will also pose a challenge. The Indonesian Chamber of Commerce and Industry (Kadin) said that the government's major challenge in 2009 was to control inflation. It said that oil and commodity prices in the world market are still difficult to predict until the beginning of 2009.

        "If the government is unable to control the inflation, the purchasing power of the middle class will also drop. At present, domestic demand is still relatively good because the middle class has been able to maintain the level of their purchasing power," Bambang Soesatyo, chairman of Kadin's permanent committee for monetary and fiscal affairs, said.

        "The problem is whether or not we will achieve a good growth that can improve the people's purchasing power, lower the poverty rate and create jobs for both new and old workers," he said.

        He said banks would also likely make necessary adjustments to their credit provisions following the increase in the central bank's benchmark interest rate, which could serve as a stumbling block to the development of the real sector.

        The Indonesian central bank (Bank Indonesia/BI) early this month raised its benchmark interest rate by 25 basis points from 8.75 percent to 9.00 percent in an effort to offset the upward trend of the inflation.

        The increase in bank interest rates could hamper the development of the production sector.

        "It is difficult to expect a significant expansion in investment next year because the business climate is not conducive due to increased risk factors," Bambang Susatyo said.

        Therefore, according to Erwin Aksa, the government has to create a conducive business climate to boost the development of the real sector and to realize infrastructure projects that had been planned but not yet built so far.

        Virtually, Erwin Aksa said, the government's expansive draft 2009 state budget was relatively realistic to support the economic growth target.

        The government has prepared a comprehensive state budget with Rp1,122 trillion expenditure allocation, far over the state revenues and grants which were set at Rp1,022 trillion.

        A finance ministry official is even optimistic with the country's economic condition. He predicted that the country's economic condition in 2009 would be better than this year's, due to various supporting factors.

        "Indonesia's economic condition in 2009 would be better than in 2008 because the world's economy is expected to perform better next year in better market conditions while Indonesia will also have a better tax resource-base than that in the previous year," Anggito Abimayu, Head of the Finance Ministry's Fiscal Policy Affairs, said.

        He mentioned a new law on income tax (PPh) which followed the issuance of a law on general tax provisions and procedures (KUP). It is expected that this year the deliberations of a law on value added tax (PPN) and a law on luxury good sales tax (PPnBM) would have also been completed.

        "The various instruments will reinforce the country's tax-resource base in 2009 and would increase the taxpayers' obedience so that the country's tax revenues would also increase," he said. T.A014/A/HNG/A/S012)

INCREASED EDUCATION BUDGET RAISES CONCERN ABOUT IMPROPER SPENDING

By Andi Abdussalam

      Jakarta, Aug 19 (ANTARA) - Teachers and various quarters in the educational sector hailed the government's proposal in the Draft 2009 State Budget to raise education expenditure from Rp154.2 trillion in 2008 to Rp224 trillion next year.

        However, worries and warnings also arose that the funds which for the first time reached 20 percent of the state budget as required by the 1945 Constitution might not be used in proper ways to improve the quality of education.

        President Susilo Bambang Yudhoyono in his state of the nation address on Friday last week said the government was proposing to raise the education budget to meet the 20 percent requirement in the Constitution.

        "The budget for education has risen to almost double from Rp78.5 trillion in 2005 to Rp154.2 trillion in 2008. In fact, for the 2009 budget, in the midst of the global oil and food price crisis that has adversely impacted our economy, we have been able to meet the 20 percent of the State Budget requirement for education as mandated by the constitution," the president said.

        The education budget calculation formula for the 2009 state budget was the same as for the 2008 state budget but the amount was increased to 20 percent.

        The president revealed the plan to raise the education budget only two days after the Constitutional Court made a decision demanding the government to allocate budget amounting to at least 20 percent from the State Budget and Regional Budgets for the education sector.

        Teachers welcomed the government's decision to heed the Constitutional Court's decision. "We gladly welcome the increase in the education budget which reaches 20 percent of the state budget to increase the welfare of teachers," Sayuti, coordinator of United Teachers Front of Nanggroe Aceh Darussalam (NAD) province, said.

        The same response was also given by other teachers in various parts of the country, including those in Lebak district, Banten.

        "If the 20 percent budget is realized, education in the country will progress and its quality will be improved," Nurmanah (50), an elementary school teacher in Rangkasbitung Timur, Lebak District, Banten province, said.

        She said that Indonesia up to now had not enough and proper educational facilities due to shortages of funds. Thus, the increase in the education budget was really a welcome surprise.

        Minister of Education Bambang Sudibyo himself claimed he was surprised to learn that the president in his state of the nation address proposed a 20 percent education budget.

        "I was surprised, even almost dazed, to hear the president's address," Sudibyo said.

        In line with the increase in the education budget, calls for a tight control of its use also arose.

        Thus, President Susilo Bambang Yudhoyono asked that increase in the budget for education in the 2009 Draft State Budget must be used most properly in improving the quality of education.

        "I call on all concerned to spend the education budget which has been raised by 20 percent as best as efficient as possible, and avoid missing a target, " he told a meeting with national exemplary figures on Monday night.

        He told the exemplary national figures, including teachers from 33 provinces in the country, and dedicated teachers from remote and isolated areas, that the increased budget will raise the living standard of teachers, and improve the quality of graduates making them ready for work.

        The president said that in order to meet the decision of the Constitutional Court, the government in the 2009 Draft State Budget allocated a budget of 20 percent for education, bringing the budget to a total of Rp244 trillion.

        In the meantime, the Indonesian Teachers Association (PGRI) also called for a tight control of the use of the education budget so that it would be effective and efficient.

        "We hail the allocation of Rp224 trillion or 20 percent of the state budget for the education sector but we hope that the use of the budget will be tightly controlled," H Dahri of PGRI for South Kalimantan branch said.

        He said that a budget of that large amount would be useless if there were leakages in its use.

        Anang Rosadi Adnansi, deputy chairman of the People's Welfare Commission of South Kalimantan's Regional Legislative Assembly (DPRD) said that the big budget should not create 'project mentality' of officials in charge of managing the use of the funds.

        "All parties welcome the 20 percent budget but it should not create a project mentality," he said referring to widely known officials' mentality to create projects where they could get money.

        Therefore, the Education Ministry and Religious Affairs Ministry as the recipients of the budget had to prepare an implementation scheme for the proper and efficient use of the budget.

        "The Ministry of National Education and the Ministry of Religious Affairs should prepare how to absorb a fund which all of a sudden increases drastically," Chairman of the United Development Party Faction of the House of Representatives (DPR) Lukman Hakim Saefuddin said.

        Minister for National Education Bambang Sudibyo said he already had a strategy for the use of the fund. He cited as an example the absorption of educational expenditure in the 2007 budget which reached 93 percent.

        He said that the education budget allocation would be channeled through the ministry of national education and the ministry of religious affairs as well as through the General Allocation Fund (DAU) and Special Allocation Fund (DAK) schemes.

        According to Sudibyo, Rp52 trillion of the education budget would be channeled through the ministry of education and Rp20 trillion through the religious affairs ministry (which manages state-owned religious schools), and the remaining ones through the DAU and DAK schemes.

        The funds will, among others, be used to rebuild damaged school buildings and increase the functional allowance of 2.7 million teachers from the present Rp1.5 million a month to Rp2 million, Minister Sudibyo said.

 (T.A014/A/HAJM/A/S012) 19-08-2008 19:39:49

GOVT'S OIL PRICE ASSUMPTION AT US$100 SEEN AS TOO LOW

By Andi Abdussalam

Jakarta, Aug 15 (ANTARA) - The government is considered to be too optimistic in setting the oil price assumption at US$100 a barrel for the 2009 state budget amid oil price volatility.

        Besides, the oil lifting the government has set at 950,000 barrels per day is also seen as lower than it should have been in an expanding draft state budget which for the first time reaches over Rp1,000 trillion.

        "As the government is to increase the allocation for the education sector by 20 percent in the 2009 state budget, it should set the oil price assumption at US$110 and oil lifting at one million barrels per day," Drajad Wibowo of Commission VI of the House of Representatives (DPR), which deals with financial, banking and national development affairs, said.

        The National Mandate Party (PAN) politician made the remarks in response to President Susilo Bambang Yudhohono's state of the nation address on the Draft 2009 Stage Budget and Financial Notes before the DPR's plenary session here on Friday.

        The Indonesian Chamber of Commerce and Industry (Kadin) concurred with Drajad Wibowo, saying the Indonesian Crude Price (ICP) assumption at US$100 per barrel in the draft 2009 state budget is too optimistic.

        During the first semester of 2008, the world crude price jumped by 40 percent to US$147 a barrel. But in the last two months it has fallen 20 percent to below US$115 per barrel.

        The recent fall of the oil price has been taken into account by the government in setting the domestic oil price assumption for the state budget at US$100 a barrel.

        "I think, the decline would not continue in 2009," Kadin chairman MS Hidayat said. He said an ICP assumption at US$110 per barrel would be more realistic.

        However, according to Dradjad Wibiwon, the government's oil price assumption at US$100 for the draft 2009 state was actually relatively good.

        "I think the oil price assumption at US$100 is OK because the oil price in the world market is difficult to predict. A price at a range between US95 and US$120 per barrel is reasonable enough," he said.

        Dradjad, who is a politician from the National Mandate Party (PAN), said the polarization of the world crude price was quite high where oil price could increase by several tens of percent in only a few months.

        "This is beyond the economists' ability to predict," he said suggesting that in line with its plan to allocate 20 percent of the state budget to the educational sector, the government should however set the Indonesian crude price at US110 per barrel.

        "It should not happen that the government is forced to finance the education expenditure base on the budget with loans. So, there should be adjustment between the oil lifting and the oil price," he added.

        The government should have set the country's oil lifting at about one million barrels per day, instead of the 950,000 as it has assumed for the 2009 Draft State Budget, Dradjat said.

        "I was surprised to hear that the oil lifting was set at only 950,000 barrels per day," he said.

        Drajad said the oil lifting target of 950,000 barrels per day was not in line with the president's statement when he gave the Cepu oil field to Exxon Mobile.

        "When transferring the Cepu oil field to Exxon Mobile, the president said the oil field would begin to produce at the end of 2008 and in 2009 production would have been increasing. So, in 2009, the oil lifting should have reached one million barrels per day," he said.

        He expressed hope that the Budgetary Committee of the DPR would correct the government's oil lifting target for 2009 and raise it to one million barrels per day.

        Virtually, the government's decision to set the oil price assumption at US$110 per barrel and the oil lifting at 950,000 barrels per day was also based on agreements between the government and the DPR.

        House speaker Agung Laksono said the DPR and the government had agreed in previous meetings set the Indonesian crude price for the 2009 state budget at a range between US$95 and US$120 a barrel.

        According to Coordinating Minister for Economic Affairs Sri Mulyani, the ICP assumption at US$100 per barrel is realistic

        Besides, the DPR and the government also agreed the Indonesian crude lifting to be set at between 927,000 and 950,000 barrels per day and the rupiah exchange rate at Rp9,000-Rp9,200 per 1 US dollar, he said.

        Therefore, the House according to Agung Laksono, has asked the government not to overreact to the volatility of the world's crude price and not to hastily change the basic assumption of average domestic oil price in the draft 2009 stage budget.

        "The House is of the opinion that the world economic turbulence and crude price volatility tend to develop to an uncertain level and difficult to predict," House Speaker Agung Laksono told the DPR's plenary session.

        According to President Susilo Bambang Yudhoyono, the government's oil price assumption was still within the price range approved by the DPR, namely between US$95-$120 per barrel.

        The president said that the selected average oil price at US$100 per barrel in 2009 is a reflection of the latest world oil price movements and the latest projection.

        "Nevertheless, the government feels that it is important to still protect the state budget against the risk of an upward movements of oil price that can always happen, just as what we have experienced during the last 18 months," the head of state said. (T.A014/A/HAJM/A/E002) 15-08-2008 19:30:28

PRESIDENT ASKED NOT TO RESPOND TO US CONGRESS OVER OPM ISSUE

By Andi Abdussalam

          Jakarta, Aug. 10 (ANTARA) - Legislators and activists have called on President Susilo Bambang Yudhoyono not to respond to a U.S. Congress letter asking him to release two sympathizers of the outlawed Free Papua Organization (OPM), Filep Karma and Yusak Pakage.

         "The president must firmly reject the request," Chairman of the People's Consultative Assembly (MPR) Hidayat Nurwahid said here on Sunday.

         The MPR chairman made the statement in response to a report that 40 US Congressmen had written to President Susilo Bambang Yudhoyono demanding the "immediate and unconditional" release of the two sympathizers of the outlawed separatist OPM.

         Karma and Pakage were sentenced to 15 years and 10 years imprisonment respectively in May 2005 for hoisting a separatist "Bintang Kejora" (Morning Star) flag in Abepura, Papua, on December 1, 2004.

         "This is a form of intervention into the nation's sovereignty," Nurwahid said expressing his regret.

         Abdillah Toha, chairman of the Inter-Parliamentary Cooperation Body (BKSAP) of the House of Representatives (DPR), concurred with Nuwahid, saying there was no need for the president to respond to the US congressmen's request.

         "The US Congress is free to write letters to anyone for the sake of its constituents. So, if the president responds to it, he should only explain Indonesia's present legal system," he said.

          Former chairman of the Executive Board of Islamic Students Organization (HMI), Anas Urbaningrum said Papua is a province within Indonesia's territory and sovereignty. Thus, it is a matter of Indonesia's domestic affairs.

          "That is why it is not proper for the parliaments of other countries to meddle into others' internal affairs," Urbaningrum who is now an executive chairman of the Democrat Party said.

          He said that a member of parliament of a big country like the United States should understand the principles of mutual respect towards the domestic affairs of other countries.

          "Yet, what happens with the US Congress. They show arrogance and attitude as if they could serve as police for other countries," he said.

         Therefore, he said that the US Congress letter need not be replied. "If we should reply it, we should only explain the principles of good relations and mutual respect," Urbaningrum said.

         Hajriyanto Yasseir Thohari of the Commission I of the DPR which deals with foreign affairs, said the letter indicated that the US Congress was ignorant about the unitary state condition of Indonesia.

         "With the letter it is clear that they are ignorant about Indonesia's democracy and law. Indonesia is no less democratic than the United States, and it is neither inferior to the United States in terms of law enforcement, because Indonesia upholds legal supremacy," Thohari said.

          Deputy Chairman of Commission I of the DPR Yusron Ihza Mahendra said if the United States alleged that injustice had taken place in Papua, they were actually triggered by the United States itself.

          "Local people have been focusing a spot light on the presence of Freeport in Timika and other foreign investors, including the British Petroleum in Bintuni, as a source of injustice," he said.    
     Yusron said that as a result of injustice with regard to abundant natural resources they could not enjoy, certain local people who did not understand the problem were than trapped in establishing a movement against the government of Indonesia.

         Andreas H Pareira, another member of the House's Commission I  said that the maneuver being played by the US Congressmen was a litmus test for President Yudhoyono.

         "It will indicate whether or not Yudhoyono would show his sovereign authority or merely act as a puppet serving the interest of another country," Pareira said.

         Meanwhile, thousands of activists of the Indonesian Islamic Organization Hizbut Tahir Indonesia (HTI) staged a rally outside the  U.S. Consulate General in East Java on Sunday protesting the US Congress.

         This was the second rally held by the HTI in two days. On Saturday, tens of them staged a rally in front of the US embassy in Jakarta warning Washington not to meddle in Indonesia's domestic affairs.

        The demonstrators unfurled banners reading "HTI Rejects US Intervention in Papua" and "Prevent the Nation's Disintegration".

        "The US said that freedom of thought and expression should be respected while in fact the two OPM members had committed a rebellious act and hoisted the morning star flag," Rally coordinator Fikri A Zudian said.

         Therefore, the HTI would call on the President to turn down the US Congressmen's request, and see that the two OPM sympathizers stay in jail.

        "The government must reject any kind of intervention. Don't pay attention to the US Congress' letter," Sodik Ramadhan, another  rally coordinator, said.

         Foreign Minister Hasan Wirajuda said on Saturday he will soon answer the US Congress' letter.

        "We will answer the letter as soon as possible. In essence, we will ask the US government to respect the legal decisions made in our country," he said.

         Yet, Minister/State Secretary Hatta Radjasa said that until Sunday morning he had not received the US Congress letter.

         "Up to know, we still have not yet received the letter," the minister said.

         In the meantime, the United States government issued a statement on Sunday through its embassy in Jakarta that it supported Indonesia's full sovereignty and integrity and did not support any separatist movements in Indonesia, including in Papua.

          It supported the Indonesian government in applying Law No. 21 / 2002 on Regional Autonomy in Papua and West Papua. (T.A014/A/HNG/B003)  10-08-2008 22:32:07

BI RAISES BENCHMARK INTEREST RATE TO OFFSET INFLATION

Jakarta, Aug 5 (ANTARA) - The Indonesian central bank (Bank Indonesia/BI) on Tuesday raised its benchmark interest rate (BI rate) by 25 basis points from 8.75 percent to 9.00 percent in an effort to offset the upward trend in inflation and to keep its rate within a targeted range.

        The government is determined to maintain the year-on-year inflation rate at 11.25 percent and is thus carrying out an inter-departmental coordination in an effort to achieve the inflation target of 11.25 percent by year end.

        However, the BI saw inflationary pressures that could emerge until the end of 2008, prompting its board of governors to decide to raise the BI rate to 9.00 percent on Tuesday.

        BI said in press statement that it had raised its BI rate in an effort to stabilize the economic financial system and to support the mid-term inflation target.

        According to BI Governor Boediono, BI still saw risks of inflationary pressures in the future which originated from world oil and food price fluctuations and pressures of demand.

        By raising its reference rate and taking into account several risk factors as well as inflationary pressures that were likely to emerge, BI hoped it would help curb inflation and predicted that the year-end inflation would be recorded at a range between 11.5 and 12.5 percent.

        In a statement, the BI said the increase in the central bank's benchmark interest rate by 25 basis points to 9.00 percent would not affect Indonesia's economic activities.

        There were indicators showing that domestic demand was still strong and the banking industry's resilience had remained under control supported by a good implementation of banks' intermediary functions.

        BI Governor Boediono said year-on-year bank credits had still grown by 31.6 percent while the gross amount of non-performing loans (NPLs) had dropped to 4.08 percent.

        He predicted that Indonesia's economy in 2008 would still grow well supported by export growth, public consumption spending and relatively high government expenditure.

        The domestic demand would also be supported by an increase in regional spending and the start of the 2009 general election preparations.

        In the meantime, Indonesia's balance of payments was also expected to perform better so that the stability of currency exchange rates would also be well maintained.

        Foreign exchange reserves up to the end of July 2008 stood at US$60.56 billion or equivalent to the amount needed to finance 4.7 months of imports and payment of the government's external debts.

        According to Boediono, the relatively high risks of inflationary pressures had been taken by BI to increase its BI rate this month, despite the fact that the impact of the fuel oil price hikes on inflation had been significantly reduced.

        The BI governor said in order to make the monetary policy effective, the BI rate increase was followed by the optimizing of other monetary instrument policies such as taking under control the volatility of currency exchange rates and the absorption of liquidity excesses through open market operations.

        "With the policy, the 2009 inflation rate target of 6.5 - 7.5 percent is expected to be achieved," he said.

        The BI's step to raise its benchmark interest rate on Tuesday had been predicted.

        State-owned BNI economist Ryan Kiryanto said last week that BI would likely raise its rate by 25 basis points to 9.0 percent this month following monthly and year-on-year inflationary pressures in July which reached 1.37 percent and 11.9 percent respectively.

        He said BI would likely take the step to offset the upward trend in inflation which was expected to be fueled by seasonal factors in the coming months.

        "But it is believed that the BI rate increase will not shock the market because banks and the real sector can understand the background conditions of such a policy," Kiryanto said.

        BI decided early last month to raise its benchmark interest rate by 25 basis points to 8.75 percent in a widely-expected move to curb the accelerating inflation.

        Inflationary pressure in 2008 was particularly the result of fuel oil and food price hikes. It noted that the inflationary pressure also resulted from rising demands due to a rise in the amount of bank loans and money supplies until the second quarter of this year.

        The inflation rate in July 2008, fueled by price increases in groups of goods and food as well as groups of services such as education, recreation and sports was recorded at 1.37 percent.

        "This is actually an annual cycle which was previously predicted to occur," Head of the Central Bureau of Statistics (BPS) Rusman Heriawan said on Friday. Thus, he said, the calendar year inflation is recorded at 8.85 percent and year-on-year inflation rate at 11.9 percent. (T.A014/A/HAJM/a/s012) 05-08-2008 19:27:11

CENTRAL BANK EXPECTED TO RAISE BENCHMARK RATE

 By Andi Abdussalam
     Jakarta, Aug. 2 (ANTARA) - The central bank, Bank Indonesia (BI), is expected to raise further its benchmark interest rate by 25 basis points to 9.0 percent this month following monthly and year-on-year inflationary pressures in July which reached 1.37 percent and 11.9 percent respectively.
     "The July inflationary pressures will likely force the central bank to raise its benchmark interest rate (BI rate) by 25 basis points to 9.0 percent," state-owned BNI economist Ryan Kiryanto said on Friday.
     The BI will likely take the step to offset the upward trend of inflation which is expected to be fueled by seasonal factors in the coming months.
    "But it is believed that the BI rate increase will not shock the market because banks and the real sector could understand the background conditions of such a policy," Kiryanto said.
     He said if however the BI worried about negative reactions from businesses if it raised its BI rate, the central bank would at least maintain its last-month rate level at 8.75 percent.
     BI decided early last month to raise its benchmark interest rate by 25 basis points to 8.75 percent in a widely-expected move to curb the accelerating inflation.
     Inflationary pressure in 2008 was particularly the result of fuel oil and food price hikes. It noted that the inflationary pressure also resulted from rising demands due to a rise in the amount of bank loans and money supplies until the second quarter of this year.
     The inflation rate in July 2008, fueled by price increases in groups of goods and food as well as groups of services such as education, recreation and sports was recorded at 1.37 percent.
    "This is actually an annual cycle which has previously predicted to occur," Head of the Central Board of Statistics (BPS) Rusman Heriawan said on Friday. Thus, he said, the calendar year inflation is recorded at 8.85 percent and year-on-year inflation rate at 11.9 percent.
     The government is determined to maintain year-on-year inflation rate at 11.24 percent.
     Trade Minister Mari Elka Pangestu said recently the government was carrying out an inter-departmental coordination in an effort to achieve the inflation target of 11.25 percent by year end.
     "The government's inflation target is 11.25 percent. We have to make sure that the target is achievable," the minister said after installing a number of echelon-1 officials at the Trade Ministry.
     She said it was her ministry's obligation to prevent the occurrence of scarcities in good stocks and to guarantee the availability of supplies so that prices would not fluctuate.
     Pangestu said that efforts to offset the inflation rate should be made comprehensively, not merely by adopting macro economic policies such as increasing or lowering the Bank Indonesia benchmark rate.
     In the meantime, BI, besides using its benchmark rate,  will also study the possibility of raising banks' minimum reserves requirement (GWM) in order to curb increasing inflation.
     "We will take a look at adjustments in the context of all monetary instruments we have such as the BI rate, foreign exchange reserves and weekly auction. If need be, we will consider the GWM. We have many weapons so that we will adopt a good policy combination that will have a minimum negative impact and bring down the inflation rate," BI Governor Budiono said.
     The second amendment of Bank Indonesia's regulation on the Minimum Reserves Ratio Requirement (GWM) for Public Banks stipulated that public bank's GWM is set at 5 percent plus 3 percent for those with a total public funds (DPK) of between Rp10 trillion and Rp50 trillion, and plus 1 percent for banks with a DPK between Rp1 trillion and Rp10 trillion.
     Banks with a DPK of lower than Rp1 trillion are only required to meet the 5 percent GMW requirement.
     Data at BI show that until December 2007 the amount of GWM was Rp158.45 trillion and up to March 2008 it was recorded at Rp125.71 trillion.
     By preparing monetary instruments, BI is optimistic that the inflation could be controlled.
     "We hope it will not (be worrying). The current inflation rate is chiefly fueled by global crude prices and must be viewed carefully. Moreover, the finance minister's statement that the fiscal side is still safe has raised the public's and the market's confidence in the economy," BI Deputy Governor Hartadi A Sarwono said.
     He said the finance minister had stated that the state budget was still safe even though global crude prices hit another record high of US$150 a barrel. The statement made BI confident it could control the accelerating inflation rate fueled by last May's fuel oil price hikes.
     After all, the world crude price spiral has passed its peak of US$146 a barrel, and is now estimated that it will drop to between US$120 and US$130 in the second semester of 2008.
     "The crude price will settle at a range of US$120 to US$130 a barrel," National Development Planning Board (Bappenas) Planning Director Bambang Prijambodo said.

(T.A014/A/f001) 02-08-2008 13:31:20